NEW YORK (TheStreet) -- Diamond Foods (DMND) shares are jumping 6.88% to $37.29 on heavy volume trading on Wednesday as the snack food company is being bought by rival Snyder's-Lance (LNCE) for $1.91 billion in cash and stock.
TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio commented on the merger saying: "Diamond Foods wasn't even supposed to exist. It almost went under. Now it is getting swallowed up by Snyder's-Lance for $1.9 billion. A win. An out of nowhere win."
"This is a brilliant deal for both because Snyder's-Lance has a terrific distribution network that needs more product and Diamond's been rescued from the dead!" he added.
The two companies made an announcement this morning that under the deal Diamond shareholders will receive $12.50 a share in cash and 0.775 Snyder's shares. This includes about $640 million in debt.
"This transaction will create a diversified, branded snacking portfolio with greater operating scale," Diamond Foods CEO Brian J. Driscoll stated. "In addition, we expect the transaction will provide us with greater resources to further develop new product innovation and broaden our geographic reach and route to market across complementary customer bases."
Diamond Foods makes Kettle Brand potato chips, Pop Secret popcorn and Emerald nuts. Snyder's-Lance, makes snacks such as Snyder's of Hanover Pretzels and Cape Cod potato chips.
Consolidation of food companies are being more and more common as earlier this year, food giants Kraft Foods Group and H.J. Heinz Holding Corp. merged to become The Kraft Heinz Co. (KHC) in a deal valued at around $49 billion, creating the third-largest food and beverage company in North America, according to the Wall Street Journal.
Shares of Snyder's-Lance are tumbling 8.43% to $33.04 on Wednesday.
Separately, TheStreet Ratings team rates DIAMOND FOODS INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
We rate DIAMOND FOODS INC (DMND) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, solid stock price performance and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- DIAMOND FOODS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DIAMOND FOODS INC turned its bottom line around by earning $1.04 versus -$6.29 in the prior year. This year, the market expects an improvement in earnings ($1.26 versus $1.04).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Food Products industry. The net income increased by 524.0% when compared to the same quarter one year prior, rising from -$1.86 million to $7.87 million.
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 8.2%. Since the same quarter one year prior, revenues slightly dropped by 7.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Food Products industry and the overall market, DIAMOND FOODS INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: DMND